The IRS has numerous resources and law enforcement tools available to collect taxes. Every return faces scrutiny, and mistakes on the return can lead to an IRS tax audit. It is important for Michigan taxpayers to remember that audits frequently result in fines, penalties and possibly imprisonment.
Unfortunately, with the greater complexity surrounding filing of tax returns, mistakes become increasingly likely. Even with care in filling out tax forms, there still could be an addition or subtraction error. Taxpayers also often fail to file all of the proper schedules.
Four crucial errors that taxpayers commonly commit include:
- A failure to get the math right: There were 2.3 million errors involving math in 2014 noted by the IRS. The likelihood of such errors appears much higher on paper returns that in returns filed electronically.
- Not reporting income: The law requires you report all income. Banks supply 1099 forms, so the IRS will have your account information available. The IRS will examine such forms closely to see if there are discrepancies between the amounts of income you claim to receive versus the amount of money you have in these accounts.
- Overstating charitable deductions: The IRS keeps statistics on what typical households donate for charity. Exceeding such a figure will make you a target for the IRS. The IRS analyzes returns for deductions that appear out of the ordinary.
- Schedule C reporting irregularities: Self-employed individuals file Schedule C returns providing a summary of earnings and losses. Business expense deductions are, of course, common. But anytime you make such a deduction, it is essential to document its validity. Be careful in taking deductions that appear to not be a regular part of doing business.
It's best not to guess on whether you are or are not in compliance regarding your returns. When in doubt, guidance by experienced legal counsel is highly beneficial. Such guidance can reduce the chances of an audit or IRS scrutiny from occurring.